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5 ETFs for January

The broader market kicked off 2018 on a positive note. And why not? Traditionally, January brings with it seasonal tailwinds for the equity world. A consensus carried out from 1950 to 2017 shows that January ended up offering positive stock returns in 40 years and negative returns in 28 years, per moneychimp.com, with an average positive return of 0.80%.

Given this historical market performance, let’s take a look at the ETFs that can be intriguing bets for the month.

Energy

Oil prices made a sharp comeback to close out the year 2017, though the whole year was not so smooth. Oil hovered around the highest level in more than two years after a pipeline explosion limited output in OPEC member Libya. The OPEC output cut deal too should give a boost to oil prices and help energy ETFs.

Plus, natural gas ETFs enjoy a seasonal benefit in the first quarter as extreme cold boosts demand for heating. This should keep United States Natural GasUNG and United States 12 Month Natural GasUNL on an upward trajectory. UNG gained about 10.7% in the last five days (as of Dec 28, 2017) (read: 3 ETF Losers of 2017 That Can Rebound in Q1).

And as small caps are more attached to the domestic economy, investors can find small-caps a good option to play. Plus, expected benefits from tax reform should give such pint-sized stocks a lift ahead. However, with the cold and frosty month likely to keep many consumers inside, it’s better to play a small-cap value stock over a growth one. Investors can take a look at Legg Mason Small-Cap Quality Value ETF SQLV.

Materials

According to a 2005 academic paper, “manufacturing and production stocks (e.g., consumer durables, chemicals, construction, mining, steel) outperform between November 1st and April 30th”, quoted on investingdaily.com.

Equity Clock also indicated that higher demand related to industrial production through the spring months feeds into seasonal strength in the material sector from Nov 20 through to May 5. Notably, the IHS Markit US Manufacturing PMI rose to 55.1 in December of 2017 from 53.9 in November and above a preliminary of 55. The data hints at the quickest clip of growth in factory activity since March of 2015.

Tech stocks also enjoyseasonal strength from Oct 9 through to Feb 15. The recently concluded fourth quarter encompassed holiday sales. Electronics sales were in a sweet spot in the latest Black Friday deals. So, tech stocks and ETFs can be momentum plays. The seasonality dies when tech companies come up with fourth-quarter earnings.

As per an article published on seekingalpha.com, as “it is the winter season in the U.S., the growing and harvest seasons in the Southern Hemisphere will dictate the path of least resistance for the price of the oilseed in the first half of 2018.”

Now, worries over dry conditions in Argentina should support soybean prices in the near term. A subdued greenback is another tailwind in this commodity investing. Teucrium Soybean ETFSOYB was up about 0.4% on the first trading day of January on short-term beneficial factors, but the long-term outlook is still bleak (see all agricultural ETFs here).

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